Arbitration agreement stands alone

Fiona Trust & Holding Corporation and others v Privalov and others HL TLR 25 October

The House of Lords unanimously upheld the decision of the Court of Appeal (26/ LLp25) requiring eight ship-owning companies to submit their dispute with three charterers to arbitration. The owners sought a declaration that they had validly rescinded the charterparties for having been induced by bribery and the charterers, in reliance on an arbitration clause in each charter, sought to have the issue determined by an arbitrator. There have been a number of cases in which a distinction had been drawn between disputes ‘arising under’ and ‘arising out of’ the agreement with the former having a narrower meaning. Such distinctions reflected no credit upon English Commercial Law. Construction of an arbitration clause should start from the assumption that the parties, as rational businessman, were likely to intend any dispute arising out of the relationship into which they had entered, or purported to enter, to be decided by the same tribunal. The clause should be construed in accordance with that presumption unless the language made it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction. The language of the relevant clause contained nothing to exclude disputes about the validity of the contract. The next question was whether in view of the allegation of bribery, the clause was binding upon the owners. They said that if they were right about the bribery, they were entitled to rescind the whole contract, including the arbitration clause, the arbitrator therefore had no jurisdiction and the dispute should be decided by the court. However, the principle of separability enacted in s7 of the Arbitration Act 1996 meant that the invalidity or recession of the main contract did not necessarily entail the invalidity or recession of the arbitration agreement. The arbitration agreement was to be treated as a distinct agreement and could be void or avoidable only on grounds which related directly to the arbitration agreement. They had to be treated as having been separately concluded and the arbitration agreement could be invalidated only on a ground which related to the arbitration agreement and not merely as a consequence of the invalidity of the main agreement.